Refer to the Competitive Market Diagram for Product Z

question 187

Multiple Choice

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D2 and S2. If there are substantial external benefits associated with the
Production of Z, then

• A) efficient resource allocation occurs at output G and price B because the market mechanism does not measure all benefits.
• B) an output smaller than G would improve resource allocation.
• C) government should levy a per-unit excise tax on Z to shift the demand curve toward D1.
• D) an output greater than G would result in a more efficient allocation of resources.

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